Reference no: EM133034937

Question - At 31 December2020, the trial balance of Lexington Pty Ltd contained the following amounts before adjustment:

Accounts Receivable $400,000 Dr

Sales 950,000 Cr

Allowance for doubtful debts 1,000 Cr

Required -

a) Based in the information given, which method of accounting for bad debts is Lexington Ltd using?

b) Prepare the adjusting entry at 31 December 2020, for bad debts expense assuming that the ageing schedule indicates that $11,750 of accounts receivable will be uncollectable.

c) During the next month, a $5,000 accounts receivable is written off as uncollectible. Prepare the journal entry to record the write-off.

d) Repeat part c) assuming that Lexington uses the direct write-off method in accounting for uncollectible accounts receivable.

e) How does the Allowance for doubtful debts affect how accounts receivable is reported on the statement of financial position at the end of the accounting period?